Thursday, March 24, 2005

Housing Market in Europe Skyrockets

By THOMAS WAGNER, Associated Press Writer

LONDON - Jack Bowley was tired of paying rent each month with nothing to show for it, and wanted to buy a home in London, where he works. But given how swiftly prices were rising, and how much of a down payment he would need for a mortgage, he couldn't reach even the first rung of the property ladder.


So he teamed up with the two friends he was renting an apartment with. They took out a joint mortgage in late 2003 to buy a three-bedroom flat in Hackney, a developing area of East London, for 260,000 pounds (now about $500,000).

"I couldn't even have afforded a studio apartment in central London by myself," said Bowley, 26, a media analyst. "But working together as close friends we were able to do much better. If we hadn't known each other so well, such a joint mortgage could be hazardous."

Overheated housing markets in some European countries and some areas of the United States are leaving many first-time buyers in a similar predicament.

Despite generally low interest rates, young professionals often have to borrow money from relatives for down payments, risk interest-only mortgages and 100 percent financing, or think creatively like Bowley did — team up with friends for joint mortgages, which often are adjustable-rate loans.

Some young couples are delaying parenthood so both partners can keep their jobs to afford the mortgage payments, and in France, Spain and Britain the average age of first-time buyers is rising. It rose from 31 to 34 in Britain between 1991 and 2004.

In Dublin, Ireland, where the average price of a residential property is now 336,028 euros (about $451,000), retired bank manager Dennis Raftery said he and his wife, both in their late 50s, are still sharing their home with their two youngest children, 20-somethings.

"They'll never be able to afford their own property in Dublin," Raftery said. "They'll just have to inherit our home once we're in the ground."

In Denmark, the average price of one-family homes has more than doubled over the past 10 years, compared with a 45 percent rise in wages.

"Many first-time buyers enter the market sooner than before, as they are afraid they won't be able to afford a house two years down the road in this rising market," said Jakob Broechner Madsen, an economics professor at the University of Copenhagen. "It's kind of a flock mentality with everybody stampeding into the market and that's keeping house prices going up and up."

In the United States, a study by consulting firm Economy.com found that house prices are so high in nearly 30 metropolitan areas that people with median incomes can't afford a median-priced home there. Most of those cities are on the east or west coast. In many other parts of America affordability isn't much of a problem.

In Britain, though, the government's National Savings and Investments department said that while wages have increased nationwide by an average of 79 percent in the last 10 years, houses prices have gone up by 180 percent. Halifax, Britain's largest mortgage lender, said last month that first-time buyers were finding nine out of 10 towns in the country unaffordable.

One result is that public sector workers, such as nurses and police officers, often can't afford to live anywhere near where they work.

In Britain, a densely populated country with an owner-occupancy rate of 70 percent, the annual number of loans to first-time buyers has fallen nearly 50 percent in the last few years, Halifax said.

Reaching out to Britain's struggling first-time buyers are Web sites such as BuyAssent and Sharetobuy — combining the functions of a bulletin board, dating agency and real estate agent to help strangers meet and become good enough friends to buy a home together on a group mortgage.

And next year the furniture superstore IKEA is expected to begin selling one- and two-bedroom prefabricated homes and apartments in Britain, as it already does in Sweden, Norway, Denmark and Finland. The BoKlok homes, built by a contractor working with IKEA, are designed as affordable housing. In Sweden, a one-bedroom BoKlok apartment in a rural area sells for as little as 200,000 kronor ($29,000).

"We want the single nurse with one child to be able to afford this," said Anders Larsson, chief executive for BoKlok in Sweden.

Another obstacle for first-time buyers is taxes. Britain has a 1 percent to 4 percent stamp duty that buyers must pay on homes that cost more than 60,000 pounds ($114,000. The government tried to help potential buyers by offering recently to double the stamp duty threshold to 120,000 pounds.

But in London, the average house price is 257,195 pounds ($491,000).

The British government is trying other initiatives aimed at helping more people become first-time buyers. Loosening its strict planning rules for constructing new homes, the government is offering surplus public land for inexpensive starter homes, and making it easier for private companies to build thousands of dwellings in areas of southern England where many people live and commute to London.

Bowley said many young professionals he knows in London, the world's most expensive city after Tokyo, remain gloomy.

"Renting is throwing money down the drain," said his roommate, Pete Edwards, 27, "and without one another we wouldn't have been able to buy so easily — if at all."

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